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Speaker 1: This is Bloomberg Surveillance. I think the currency is beginning

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Speaker 1: to shift its focus from nominal short term interest rate

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Speaker 1: dereferentials to real short term interest right dereferentials. If we're

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Speaker 1: going to start so assessful, we think is gonna happen

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Speaker 1: in the emerging world. That's cristal for the global if

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Speaker 1: on leave, the story starts and ends in what happens

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Speaker 1: in China. We're in a modest growth environment. Growth is

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Speaker 1: Britain and below POW, but we are not facing a

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Speaker 1: significant risk of recession anytime. So Bloomberg Surveillance your link

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Speaker 1: to the world of economics, finance, and investment on Bloomberg Radio.

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Speaker 1: Good morning everyone, Bloomberg Surveillance and Michael McKee and Tom Keane,

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Speaker 1: we welcome all of you to Bloomberg Surveillance on economics, finance, investment,

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Speaker 1: on international relations. Will do that with David Blanche Flower

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Speaker 1: in a moment. Bloomberg Surveillance this morning. This Monday is

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Speaker 1: always brought you by Cone Resnec. Accounting, tax, advisory, regulatory

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Speaker 1: changes can impict your business. See how the experts at

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Speaker 1: Cone Residents can help you navigate these complexities. Find out

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Speaker 1: more at Cohn Resnick dot com, Michael McKee, await for week.

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Speaker 1: He's back, Mike. It was a central bank derby last week,

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Speaker 1: it almost seemed. And I thought one of the great

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Speaker 1: insights was John Williams disagreeing with James Bullard about the

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Speaker 1: dot charts. Did you read about the dot charts in

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Speaker 1: your one week there? I actually was um at dinner

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Speaker 1: with research director for one of the regional Federal Reserve

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Speaker 1: banks who noted the frustration within the Federal Reserve at

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Speaker 1: the inability of investors to understand what the dot charts

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Speaker 1: are supposed to tell you, which was Bullard's argument. He

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Speaker 1: also noted that investors don't tend to get the Atlanta

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Speaker 1: Fed GDP now number correct. They think it's a forecast

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Speaker 1: rather than a data point um at any point in time.

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Speaker 1: And uh and they said, you know, we we try

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Speaker 1: to be transparent and provide all this information, and people

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Speaker 1: just don't understand what we're doing. Very good, let us

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Speaker 1: begin a discussion, and within the enthusiasm of the moment

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Speaker 1: where Ian entered the second quarter, let me garner a

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Speaker 1: single sentence. A worker who was employed in an area

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Speaker 1: of high unemployment earns less than the exact same individual

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Speaker 1: working in a region with low joblessness. This was the

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Speaker 1: wage curve. It was invented by one Andrew Oswald and

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Speaker 1: a guy named David blanche Flower. This is right after

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Speaker 1: Ricardo that they did this, and Danny blanch Flower joins

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Speaker 1: us now from Dartmouth professor. If you wrote your classic

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Speaker 1: the wage curve, now, how would it be different? The

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Speaker 1: big difference would be that prior to two thousand and eight,

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Speaker 1: the way we assumed you could measure lay the market

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Speaker 1: slack was to simply look at the unemployment rates, and

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Speaker 1: all the other labor market measures moved with it. Since

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Speaker 1: two thousand and eight, um, many policymakers and many commentators

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Speaker 1: has assumed that relationship continued. But it turns out that

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Speaker 1: the unemployed rate today underestimates the extent to which there's

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Speaker 1: labor market slack. So the wage curve fits very well,

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Speaker 1: has a long flat pad, but you need to rewrite

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Speaker 1: it in labor market slack space. You know that rather

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Speaker 1: than just the unemployment rate, there's the underemployed, and there's

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Speaker 1: all these people who are out of the labor force

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Speaker 1: who this month we saw coming back as we expected,

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Speaker 1: which pushes up the unemployment rate. It turns out, so

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Speaker 1: there's lots of labor market slack, just as we assumed

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Speaker 1: that there would be, and that's why there's essentially no

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Speaker 1: no wage pressure because the US economy is a very

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Speaker 1: long way away from full employment. Do do policymakers and

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Speaker 1: particularly monitory authorities, whatever nation they're in, should they worry

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Speaker 1: about the quote unquote under employed or is that asking

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Speaker 1: too much of them? Well, I don't think it's asking

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Speaker 1: too much of them. Many of us have been writing

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Speaker 1: about it for quite a long time in almost every country. Now.

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Speaker 1: What we see is that people who are in jobs

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Speaker 1: would actually like to have more hours than they can get.

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Speaker 1: There there are hours constraints. We have some indicators of

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Speaker 1: it in the United States, which is this measure called

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Speaker 1: part time for economic reasons. But actually we know that

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Speaker 1: there's lots of full time people as well who'd like

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Speaker 1: to have more hours, and the fact that these folks

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Speaker 1: are under employed keeps wage pressure down, and as demands

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Speaker 1: for workers rises, firms can increase the number of hours

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Speaker 1: that their workers have rather than pull from the unemployment stock.

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Speaker 1: And the interesting thing about this is that the scale

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Speaker 1: of under employment basically was zero between two thousand and

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Speaker 1: two thousand and eight. But now that slack still exists

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Speaker 1: on top of the unemployment. Define for me what a

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Speaker 1: long way from full employment means. I mean, we were

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Speaker 1: at ten percent unemployment at the height of the recession,

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Speaker 1: we're now at five. How much further do you have

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Speaker 1: to go to take up Danny blanch Flowers slack. Well,

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Speaker 1: it's obviously there's it's obviously pretty hard to exactly work

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Speaker 1: that out. My my assumption is probably we're more like

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Speaker 1: seven seven and a half percent unemployment, and it will

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Speaker 1: take perhaps on the best case scenario, another eighteen months

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Speaker 1: or so of two hundred thousand the months in job

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Speaker 1: in non farm payroll raises before we see anything like

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Speaker 1: a big jump in wage wage growth that you'd see

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Speaker 1: its funemployment. It's hard to know. That's why the Fed

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Speaker 1: says they're following the data. But the level of slack

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Speaker 1: is still quite considerable, and I think it's much more

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Speaker 1: considerable than most other people think, not least because of

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Speaker 1: the number of young people who have left the labor

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Speaker 1: force and will start to come back as the economy

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Speaker 1: continues to grow and move towards full employment. So my

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Speaker 1: my guess is we're probably around seven probably now a

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Speaker 1: couple of percentage points. But the problem is that as

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Speaker 1: these folks come back to the labor from the into

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Speaker 1: the labor force, as we saw on Friday, that actually

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Speaker 1: can raise the unemployment rate. How do we have so

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Speaker 1: many job openings as suggested by the Jolts numbers, when

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Speaker 1: we have so many under and unemployed people out of

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Speaker 1: the labor force. Well, there's all there's always been an

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Speaker 1: issue of matching workers to two jobs. I wouldn't say

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Speaker 1: that there are actually so many. I mean, go back

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Speaker 1: to my point where where there's under employment, workers are

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Speaker 1: in jobs their match two jobs that firms have, but

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Speaker 1: they would like thirty eight hours a week and they're

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Speaker 1: employers offer them twenty four. So there's an issue. Mean,

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Speaker 1: the issue is partly to do with matching of workers

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Speaker 1: to jobs, but actually workers are constrained by the lack

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Speaker 1: of jobs and the lack of hours. Well, if if

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Speaker 1: there is a mismatch out there, does that change as

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Speaker 1: more young people with better training come into the labor

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Speaker 1: force or does this uh slow down because we don't

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Speaker 1: have the right people to take up these jobs. I mean,

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Speaker 1: there are many many cops right Well, Mike, if it

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Speaker 1: was true that there were lots of job openings and

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Speaker 1: there weren't enough people out there, there would be an

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Speaker 1: obvious prediction, which is, well, there ought to be a

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Speaker 1: big rise in wage growth, because if that was true,

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Speaker 1: the way that firms would get the workers that they

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Speaker 1: needed will be to raise wages and attract them somewhere else.

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Speaker 1: And that's not true. And the puzzle for anybody who

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Speaker 1: makes that claim that we're close to full employment or

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Speaker 1: there's lots of jobs out there really and people aren't

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Speaker 1: feeling if that was the case, then wait, and if

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Speaker 1: it was also true that long term unemployed didn't count

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Speaker 1: from all of those stories, is that would then generate

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Speaker 1: a big wage push, which we have not seen. So

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Speaker 1: that doesn't seem to really be a winning argument. Danny

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Speaker 1: want to come back and talk about this, but let's

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Speaker 1: get started down The Wall Street Journal has four killer

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Speaker 1: charts today. Trade One of them, folks, I've been using

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Speaker 1: on Bloomberg Surveyan's television, which is just simply Global exploit Reports,

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Speaker 1: which is a general statement is flatlined. I don't want

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Speaker 1: to make it to gloomy. The chart of foreign direct

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Speaker 1: investment inflows when you sum it all up worldwide is breathtaking.

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Speaker 1: I mean, we're literally getting back to where we were

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Speaker 1: fifteen years ago. Why did that happen? Well, governs a

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Speaker 1: great question. And my my fear, and I've been gave

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Speaker 1: a speech last week on this, my fear is once

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Speaker 1: again people underestimated the impact of the of the flowing

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Speaker 1: of a major economy in world. In two thousand and

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Speaker 1: six and eight, we underestimated that the impact of the

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Speaker 1: US slowing, and here we have a rapid slowing in China.

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Speaker 1: I mean, I think that's the first thing. And then

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Speaker 1: now global uncertainty. But um certainly it appears that global

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Speaker 1: trade is declining. And my my favorite old chart from

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Speaker 1: two thousand and eight is the chart of the Baltic

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Speaker 1: dry and the cost of renting cape sized vessels, which

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Speaker 1: is collapsed through the floor. But it appears around the

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Speaker 1: world that shipping has been in decline, air freights declined,

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Speaker 1: rail freights decline, the cost of shipping um containers has collapse.

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Speaker 1: So global trade appears to be falling, and and Chinese

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Speaker 1: export appears to have fallen. So a lot of this,

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Speaker 1: I think has to do with the rapid decline in

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Speaker 1: in China, and essentially That's what Janet Yellen talked about

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Speaker 1: the fear of global slowing and its impact on the

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Speaker 1: United States, and that was really one of the themes

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Speaker 1: last week Fogs, this interview and meeting on and off

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Speaker 1: the mike with all sorts of people really focus back

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Speaker 1: to a view of e m and led by China

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Speaker 1: David Blanche Flows with Dartmouth College. We will continue our

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Speaker 1: discussion in the n A. No, no, they're yelled, did

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Speaker 1: better than good? Come on yo yo for for for

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Speaker 1: the Ivy League, those are the highest. I have to

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Speaker 1: do a surveillance correction though. I I Villanova wins, that's great,

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Speaker 1: but North Carolina is my last remaining team in the brackets.

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Speaker 1: I have a interest in that, you know as well.

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Speaker 1: Best team wins. Let's features up for down features up

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Speaker 1: twelve uh the yeah one eleven fifty five stronger yea

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Speaker 1: that bears watching as we begin the week. Really have

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Speaker 1: seen that for some time recently, West Texas thirty oil

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Speaker 1: up this morning. Let's check out with Michael bar Now

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Speaker 1: I'll get the latest world of national headlines. Michael, Mike, Tom,

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Speaker 1: thank you very much. Officials say a wave of suicide

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Speaker 1: attacks wept across Iraq today, killing at least twenty nine people.

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Speaker 1: The deadliest attack happened about two hundred miles southeast Baghdad.

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Speaker 1: A suicide bomber blew himself up inside a restaurant that

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Speaker 1: is frequented by Shi I'd paramilitary militia fighters abode with

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Speaker 1: more than a hundred thirty refugees who fled Togrees as

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Speaker 1: we turned them to Turkey. It's part of a European

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Speaker 1: Union deal to stem migration to Europe. Republican presidential front

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Speaker 1: runner Donald Trump is calling on Ohio Governor John kasy

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Speaker 1: to quit the race. Trump says the nomination will be

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Speaker 1: without It will be his without Kasey, who has no

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Speaker 1: chance of winning the nomination. Trump and Ted Cruiser in

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Speaker 1: a tight race in Wisconsin. Global News twenty four hours

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Speaker 1: a day, powered by our twenty four hundred journalists more

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Speaker 1: than a hundred fifty news bureaus from around the world.

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Speaker 1: Michael bar Mike, Tom, Michael, thanks so much again. I

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Speaker 1: mentioned Yen one fifty four off to see that can

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Speaker 1: push every stronger. A lot of doubt about that. You're

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Speaker 1: O one thirteen eighty next. David Blanche Flower and stimulus

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Speaker 1: on austerity. My co McKee and Tom King Bloomberg Surveillance.

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Speaker 1: The news update brought to you by Mercedes Ben's outstanding

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Speaker 1: dot com for details. Today global business news twenty four

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Speaker 1: hours a day, if Bloomberg dot Com, the Radio plus

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Speaker 1: mobile app and on your radio. This is a Broomberg

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Speaker 1: Business Flash and I'm Cameron Moscow. US dot Index futures

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Speaker 1: are higher this morning. Let's go to the First Word

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Speaker 1: Breaking news desk for today's morning call. And here's Vince Singnerella.

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Speaker 1: Good morning, Vince, Good morning Karen. As you say, US

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Speaker 1: futures are higher, dows up seven s and p up

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Speaker 1: two NAS dets up four and a half. US tenure

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Speaker 1: yield is at one point seven seven percent. Oil prices

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Speaker 1: are a bit higher. W T I Crew thirty up

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Speaker 1: eighteen cents, Rent up twelve cents at thirty eight seventy nine.

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Speaker 1: On the economic front, March New York I s M

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Speaker 1: at ten, durable goods Capex orders and Shipment's Boston Fed

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Speaker 1: President Rosegund speaks at nine thirty, and Reserve Bank President

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Speaker 1: of Minneapolis Cash Cary holds a Too Big to Fail

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Speaker 1: conference at seven. In some of today's top news, Alaska

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Speaker 1: Air to buy British Virgin America for fifty seven dollars

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Speaker 1: to share cash forty seven percent premium. Bats Global Market

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Speaker 1: sets an I p O at eleven point two million shares,

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Speaker 1: price up between seventeen and nineteen dollars a share. Live

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Speaker 1: from the First Word Breaking News Desk. I'm Vincent Cignarella.

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Speaker 1: Karen alright, thanks VINCEA to hear live breaking news over

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Speaker 1: your Bloomberg type squaw could go on your terminal. Let's

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Speaker 1: ask you a w K go and that's a Bloomberg

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Speaker 1: business flash. Tom and Mike Karen, thanks so much, greatly appreciated.

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Speaker 1: A Bloomberg surveillance this Monday, brought you by Investco. Factor

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Speaker 1: Michael McKee and Tom Key Mike. We should say who

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Speaker 1: David blanche Flower is. We talked earlier about his iconic

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Speaker 1: the wage curve, but he, besides his daughter's kept the

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Speaker 1: GDP of the United Kingdom afloat for like three years

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Speaker 1: with various marriages in the United Kingdom. I mean he

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Speaker 1: was with the Bank of England, he was on the

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Speaker 1: Monetary Policy Committee and then the longtime commentator in UK newspapers.

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Speaker 1: You were last with the Independent, which has breathed its

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Speaker 1: last as a print institution, and you're still online with

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Speaker 1: the With the Independent. No, we separated over a disagreement

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Speaker 1: over the support of the Independent of the of the

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Speaker 1: government in not left may interesting over opinion that an

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Speaker 1: independent newspaper, which anyway, let's move on from that. Let's

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Speaker 1: move on from that, all right, let's let's move on

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Speaker 1: to this. Uh, the idea to go along the idea

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Speaker 1: of slacking the labor market and the fact that wages

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Speaker 1: aren't rising as much. Jan Randa very interesting right up

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Speaker 1: on the Bloomberg today and I urge everybody to look

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Speaker 1: at this story actually came out over the weekend. Um

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Speaker 1: wage growth according to a new study published by the

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Speaker 1: San Francisco Fed Mary Daily, The associate director of research

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Speaker 1: there suggests that our the numbers we look at in

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Speaker 1: terms of wage growth are not the best. I don't

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Speaker 1: want to say inaccurate but not the best measures of

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Speaker 1: wage growth because the composition of the labor market has

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Speaker 1: changed during the Great Recession, disproportionately workers at the lower

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Speaker 1: end of the wage scale. We're fired, and now they

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Speaker 1: come back, and as they are added in, their lower

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Speaker 1: wages dragged down wage growth. And then we have higher

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Speaker 1: wage baby boomers retiring now and that is also a

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Speaker 1: drag on wage growth. And according to the different kinds

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Speaker 1: of indicators she looks at, like the wage growth number

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Speaker 1: from the Atlanta Fed, wages are growing at three point two,

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Speaker 1: So maybe we are seeing some pressure that is not

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Speaker 1: being properly measured. Well, all the people who need to

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Speaker 1: see wage rises have jumped to all kinds of excuses.

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Speaker 1: The excuses first of all, where um that wage growth

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Speaker 1: was going to come. It was a lagging indicator, it

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Speaker 1: was really going to come. Um. I don't buy that analysis. Actually, UM,

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Speaker 1: it appears it's very hard actually to see many places

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Speaker 1: around the world where workers are making three percent. I mean,

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Speaker 1: the issue is who's actually making that. So if you

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Speaker 1: look at things like well, let's just go to um

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Speaker 1: production and nonsupervisory workers, their wage growth is around two UM.

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Speaker 1: I mean, you can fiddle around with the data and

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Speaker 1: try and pretend on the some assumptions that it's higher

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Speaker 1: than it actually is. But the question is, where are

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Speaker 1: these people who are making three and four percent wage growth?

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Speaker 1: I don't see them. Nobody else sees them. Um, and

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Speaker 1: some people need to fiddle around with the data. But

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Speaker 1: I just don't buy that the data looks to be

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Speaker 1: consistent around the world with relatively flat wage growth. I

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Speaker 1: I look at it, and I look at the movements, Professor,

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Speaker 1: and more than anything, what I see is a bimodal

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Speaker 1: trimordal America, or a bimodal trimodal world for that matter.

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Speaker 1: Can we trust the numbers and policy makers use an

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Speaker 1: allan macro analysis or is that a quaint thing? For

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Speaker 1: another time? When I think it is quite quaint, I mean,

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Speaker 1: I might write in the sense that you can look

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Speaker 1: at different parts of the distribution and you can see

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Speaker 1: different bits of wage grows. Let me give you an example.

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Speaker 1: The latest data in the UK from a thing called

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Speaker 1: the Labor Force Survey has actually got the mean growth

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Speaker 1: rate of two and the median growth rate of zero.

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Speaker 1: And obviously they I mean it's right in the sense

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Speaker 1: that different bits of the distribution are impacted. Um, but

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Speaker 1: they certainly does turn out that it's one simple measure

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Speaker 1: may not well be enough, but certainly there are issues

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Speaker 1: about people get paid. There certainly appears around the globe

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Speaker 1: that the top decile and maybe even the top percentile

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Speaker 1: have done particularly well. The question is what's happened to

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Speaker 1: the lowest half of the distribution. So there's certainly are

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Speaker 1: distributional effects. But again, I say around the world, So

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Speaker 1: where are all these people that supposedly are making these

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Speaker 1: huge wage growth. I don't know. If anything, it's very

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Speaker 1: hard to see any The other thing perhaps to go

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Speaker 1: and look at is if you look at union wage settlements.

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Speaker 1: We don't see that in union wage settlements either. So

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Speaker 1: I don't really buy the fiddle with the data and

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Speaker 1: I can try and get an answer that's bigger kind

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Speaker 1: of response, we're gonna have to leave it there, David,

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Speaker 1: thank you so much. At Dartmouth College and this waking

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Speaker 1: I could go on like for like two hours. So

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Speaker 1: they did a lecture once with Professor Blanche Flower in

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Speaker 1: Dartmouth and Mike it was of it. It was just

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Speaker 1: riveting how the students. Two things intrigued me. The students

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Speaker 1: listened to what he had to say within the international

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Speaker 1: macro continuum. It wasn't just all the usual you know, textbook,

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Speaker 1: boiler plate and the other thing, Mike that was frightening

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Speaker 1: was how smart the students questions were, how informed they

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Speaker 1: were because they listened to Bloomberg Surveillance every morning. That's

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Speaker 1: why I'm kidding, but it was a great pleasure. You

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Speaker 1: need to listen to this program every day and you'll

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Speaker 1: be you'll pass your class a lot going on. What

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Speaker 1: an end of the first quarter? Like The most amazing

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Speaker 1: thing to me is we begin the second quarter? Is

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Speaker 1: I believe we end it with Brexit. I mean, you know,

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Speaker 1: I granted it's a long ways away, five days away

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Speaker 1: or whatever, but it is going to be a wild

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Speaker 1: end of June this year. We'll throw in the fact

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Speaker 1: you got a FED meeting Dana June, and you got

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Speaker 1: Greek debt. So Mike and I are taking off. Oh mate,

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Speaker 1: that's the answer, because we're not getting out of here

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